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Thursday, April 22, 2010

Interview with Jerry Fitch, Teridian Semiconductor

Story by Benjamin F. Kuo

Last week, Irvine-based Teridian Semiconductor (www.teridiansemiconductor.com), a developer of semiconductors for the electric metering and electricity measurement market, was acquired by Maxim Semiconductor. We had a chance to speak with Jerry Fitch, CEO of the firm, about the interest in the electric/smart metering market, his views on where the market is today, as well as a bit about the experience of operating as a private equity backed firm.

Thanks for the time. For our readers who might not be familiar with Teridian, can you describe what your business is?

Jerry Fitch: The business management team at Golden Gate Capital bought Teridian in 2005. At the time, we had a couple of customer buying chips from us that were processor chips, used for doing energy measurement in commercial meters. In the 2002 and 2003 time frame, when we were still under TDK, we had started looking at opportunities to take the business, and concluded that the market for residential electricity meters hadn't evolved in over 50 years, and that there was an opportunity down the road to get away from the legacy meters on people's walls today, and move to a different generation of meters. We envisioned a meter that had features such as time-of-use data storage, energy-measurement and usage, and other features which really made it what utilities wanted it to be. That allowed for the elimination of meter reading by people or drive-by, allowed for anti-theft types of configurations--outside of the U.S., there's a decent amount of theft of electricity. We talked to the six dominant meter manufacturers, to really understand what they wanted, and came up with the first generation of our parts in 2004, almost concurrently to when we bought the business. We continued to really grow the business globally, and today have around 60 meter manufacturers using our processor parts. We've got four generation of parts in the market, with three in production, and the fourth sampling--with a fifth in design.

Two years ago, we also started seeing interest in energy measurement for devices. What I mean there, is for servers, power supplies, appliances, with manufacturers trying to understand at the end point, how much electricity consumption there is. In a home, you might have five or six devices in a house which use a significant amount of electricity, and manufacturers care about that. Today, they're designing into the larger appliances smart grid programs, and a number of server manufacturers are starting to design in and introduce energy measurement into their devices as well. There's also been a pretty significant move towards smart metering in the U.S., and with smart metering it's much more today than the meters themselves, it's also at the device level. Our chips are unique in that you can also do things like turn things on and off, and gives the ability for consumer electronics to do such things are turning lights on and off remotely from a cell phone. That's why Maxim came in to acquire the company, because they looked at the opportunity and saw the business growing significantly, and also the ability to grow even faster under their much larger umbrella.

It seems like the energy measurement area has really started to heat up recently, did you predict this when you bought the business?

Jerry Fitch: We felt pretty strongly when we bought the business that the market was going to evolve. There was legislation moving through in 2004, which ultimately came out in 2005, which was a starting point for the smart meter discussion. We knew that people cared about it on the government level, and that there was going to be a continuing supply/demand constraint on the generation side of electricity. One thing we were fortunate in, and which as a management team we'd acknowledge fell into our lap, was the whole area of energy measurement at the device level. We never would have thought, five years ago, that that would happen as well. However, as that evolved, as a management team we did a good job going after that with our IP, and that piece went well.

Was there a turning point where you saw the smart meter/energy monitoring business really start taking off?

Jerry Fitch: There were several dynamics that drive it. One was ENERGY STAR, which the Department of Energy and EPA owns, which started putting out requirements for ENERGY STAR for the server market and the power supply market. Those requirements really started requiring power capping and a better understanding of electricity consumption. That really drove the larger server manufacturers and gave the market an impetus to get moving.

Where is the meter market now on the curve?

Jerry Fitch: California is always a bell-weather for this kind of activity. In California, the three major electrical utilities--PG&E, which covers all of Northern California and pretty far into Central California, Edison in Southern California, and in San Diego PG&E, are all deploying smart meters now. PG&E is in full deployment, and is installing somewhere between 30,000 and 40,000 meters a week. Edison is right behind, and in fact at my house will be putting in a meter in the next month--they're basically in full deployment. My parents live in San Diego with San Diego Gas and Electric, and they had their meter changed out last month. We're really in active deployment in the state, with 13 to 14 million meters in the state slated to be replace in the next three or four years. A number of other states and municipalities are doing similar things--in Dallas, Encore is changing out their meters, Florida Power, there's a significant amount of activity going on in terms of changeouts--and that's just in the US. There's similar activity internationally.

How has your experience being owned by private equity been? A few executives we've talked to have told us that private equity often is a bit more forgiving than venture capital?

Jerry Fitch: That's a fair statement. When we bought the business, we laid out the strategy for the private equity team, and they bought into that strategy. They hadn't gotten in the way of running things on a day to day basis, which was certainly helpful. I think the biggest difference between a venture backed company and private equity is typically, private equity backed firms have revenues and multiples, and usually with venture there's not those revenues and lots more oversight over how that capital is deployed, and it's often given out in pieces. In private equity it's funded on the front end, and it grows from there.

What's the story behind the acquisition by Maxim--how did the acquisition happen?

Jerry Fitch: We had just had, over the last eighteen months, significant amount of interest in the business. There were a number of semiconductor companies looking at that market as one that was unique, and growing. It was in a space that was obviously very attractive, and growing significantly. It came to a point that as a company, management team, and at the board level, we realized we needed to explore having conversations with multiple people because there was just so much interest in the business. We felt it made sense to run a process, and see what people were willing to pay. We ran that process over the last three months, and out of that came the offer from Maxim. We'd actually also played with the idea of becoming public, because we certainly have the financial and performance to be public, as an alternative if we didn't like the pricing from a strategic.

Finally, how big are your operations there in Irvine?

Jerry Fitch: The total size of the company is 115 people, and we have about 85 here.